News & Articles

Temporary Changes to Bankruptcy Code in New COVID-19 Legislation

Published on January 12, 2021

The recent Consolidated Appropriations Act, 2021 (the “Act”) added some additional bankruptcy tools for small businesses.  Significantly, under the auspices of The Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act, there are several temporary changes to the Bankruptcy Code.

The first important change is that PPP loans may become available to certain debtors – those proceeding under subchapter V of chapter 11, chapter 12, and chapter 13. This change only becomes effective upon written authorization from the U.S. Small Business Administration (the “SBA”) to the United States Trustee’s office. In the newly released Interim Final Rules, the SBA reaffirmed its position that bankruptcy debtors are ineligible to receive PPP loans, but it remains to be seen whether the SBA will reverse its position given the upcoming change in administration on January 20, 2021.

Next, Congress added further commercial lease protections for some chapter 11 debtors. Section 365(d)(3) has been changed to allow subchapter V debtors experiencing financial hardship from the COVID-19 pandemic an additional 60 days, for a total of 120 days, to delay performance under a commercial lease.  Similarly, the period of time a debtor has to decide whether to assume or reject a lease of commercial real estate has been expanded to 210 days, with an additional 90 days available with the bankruptcy court’s permission.

Finally, the Act helps some commercial landlords by making certain pre-petition lease arrearage payments protected from avoidance as a preference.  This last provision contains some important qualifications relating to timing and documentation of the payments.

The Act’s bankruptcy provisions sunset on December 26, 2022.

For questions, please contact any member of Ryan Swanson’s Corporate Bankruptcy, Restructuring & Finance group.

This message has been released by the Immigration Group at Ryan, Swanson & Cleveland, PLLC to advise of recent developments in the law. Because each situation is different, this information is intended for general information purposes only and is not intended to provide legal advice on any specific facts and circumstances. Ryan, Swanson & Cleveland, PLLC is a full-service law firm located in Seattle, Washington.

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